My primary dissertation research topic is motivated by the impact of online network technology on market incentives and behavior. Specifically, I study quality reporting systems and open-source projects as incentive mechanisms. Both are recently getting popular since online networks enable potential consumers or users easier to access or to develop the information. Contract theory, game theory, and mechanism design are the main tools I use to analyze this topic.

• A Theory of Optimal Quality Reports with Inertia (Job Market Paper)

In my job market paper, I consider how to design quality reporting systems (QRS) which imperfectly provide quality rating information to consumers. QRS attempt to correct the moral hazard problem from opportunistic firms when consumers cannot observe quality. Consumer Reports, School Report Cards, and Physician Report Cards are just some examples of QRS. In a two-period repeated contest model, two firms try to get the relatively better rating since the better rating leads to a bigger market share. I investigate the optimal rating accumulation rule which provides incentives for firms to choose the highest expected overall quality level in the market across periods. In a quality report, a firm's rating is determined by the expected quality of the firm's goods and a carried-over advantage from the firm's past rating. The size of advantage score is the system designer's control variable and the choice of its size captures how cumulative rating the reporting system uses. The results show that the optimal system allows greater rating accumulation in a market with a larger degree of uncertainty in quality evaluation or production. I also study the case in which the early winner may have an advantage in market share as the incumbent due to consumers' switching costs.

• Evalution Interia and Market Segmentation

This paper shows that inertia in consumer’s perception of product quality can cause
market segmentation with ex ante identical firms. In a dynamic contest model with
moral hazard, a consumer wants to choose the product which provides the largest
difference between its expected quality and its price. However, there is some inertia in
consumer perceptions in the sense that the consumer chooses the brand which was best
in the preceding period unless his evaluation of some other firm’s offering is better by
a certain amount. I show that once a firm is perceived as a higher reputation brand,
consumer inertia creates an incentive for the firm to provide high quality at a high
price in subsequent periods while lower reputation firms offer low quality at a low price
even though the firms are ex-ante symmetric.

• An Economic Approach to General Public License(GPL) (with Murat Yilmaz)

We analyze open innovation projects and their effects on incentives for innovation. We model basic features of the GPL, one of the most popular open source licenses and study how opportunistic users would behave under the license. By altering the timing of incentives, open innovation under GPL provides a new tool for innovation policy which has a trade-off between stimulating innovation and promoting disclosure. By using open knowledge, a firm can increase its technology level and therefore its probability of innovation success and of achieving a monopoly in that period. Under GPL, however, any innovative findings using open knowledge should be also open knowledge in subsequent periods. This obligation decreases the expected future revenue of the firm.